Supernormal Profits in the Fashion Industry

The fashion industry is noted for the shows that are presented in the spring and fall to highlight upcoming collections. These shows target buyers, primarily of retailers, but are seemingly covered by the media as much for the people who are in the audience-often celebrities-as for the shows themselves. Some collections are not sold at retailers but instead are offered as limited editions; generally, however, the collections are offered at retailers as diverse as Target and Nieman Marcus. The prices that are charged for haute couture can be quite high, yet some observers wonder if the cost of creating those garments justifies the high price. If the price is significantly higher than the opportunity costs associated with the product, the seller can be said to be realizing a supernormal profit. This research considers how profit is defined from an economic point of view, what constitutes supernormal profit, how the fashion industry is structured with regard to price and cost, and whether the fashion industry does, indeed, generate supernormal profit as a rule.

In accounting, profit is equal to revenue less cost ("The Concept" n.p.). Companies can increase their profits by increasing their revenues at a higher rate than their costs increase. Companies can also increase their profits by decreasing their costs when their revenues are remaining steady over a given period of time. Companies that a

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ten have no direct influence on the actual performance of the company, yet may well realize profit from their investment. Even when there is value added, the question of whether or not profits are supernormal can be decided by some according to the magnitude of the profit without relationship to how that profit was generated or the value added by the participants (Gudeman 105). The Fashion Industry For most of human history, clothes were handmade, often by the woman of the household, or by female servants. Those who could afford nice material and expensive designs typically indulged those desires; however, most individuals did not put much consideration into their wardrobe. The emergence of a middle class in Europe and the United States made it possible for people to take more of an interest in how they presented themselves in clothes, and patterns of popular clothes were introduced for people to copy. With the industrial revolution, it became possible for clothes to be mass-produced, but there was still a desire among many individuals to have clothes that were considered fashionable and even unique in an era when mass production was increasingly the norm. Today, with advanced technologies, manufacturers a

Category: Economics - S